PokerStars is coming to Pennsylvania and Stars is looking to get on TV in the US

PokerStars Parent Company Is In ‘A Transition Year’ Looking For US Partners

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The Stars Group told investors that it was in “a transition year” during the company’s earnings call to present results for Q2 of 2018.

CEO Rafi Ashkenazi certainly has his plate full. His statement on the results of PokerStars‘ parent company gave an indication of the size of the landscape on which he is focused:

“The Stars Group’s quarterly results reflect both continued organic growth within our International business and the contributions of our Australian acquisitions. We continued enhancing our products and user experience across all verticals and executing on our cross-selling strategy.”

The continued emergence of our sports betting and casino offerings and the addition of our 2018 acquisitions have transformed our business and greatly enhanced the foundation and diversity of our consolidated revenue base, which will now be nearly equally split among verticals and roughly 75 percent locally regulated or taxed.”

“We are now focused on the next stage of our transformation—integration.”

The Q2 2018 results, web presentation and management discussion can be found here

Online poker continues to grow

As for poker, revenues yet again showed an increase compared with last year. Poker revenues for the quarter came in at $217 million compared to $203 million in 2017, a 6.9 percent increase.

A little more than half of that gain was the result of currency fluctuations, but the underlying business still increased by 3.8 percent.

This seems impressive given the headwinds the company has had to face in the online poker market: “the cessation of operations in Australia in September 2017 and Colombia in July 2017, and continued negative operating conditions in Poland due to certain prior regulatory changes in that jurisdiction.”

The growth in spite of these conditions was achieved as the result of:

  • The positive impact of the Stars Rewards loyalty program
  • The introduction of shared poker liquidity in France and Spain in the first quarter
  • The addition of Portugal to the European shared liquidity pool in the second quarter

The Stars Rewards program came in for more attention during the earnings call. Players can expect yet more changes as the company focuses rewards more heavily on net-depositing players and in particular those whom PokerStars defines as “high-value.”

Stars explained that this would have a negative impact on two of their KPIs:

“The Stars Group anticipates that these and future planned improvements, despite an expected overall decrease in volume of gameplay and total deposit balances held by high-volume, net-withdrawing players, will create a more attractive environment and experience for recreational players, allowing them to play longer on its platforms and engage in its various product offerings.”

Stars said that the money saved by providing lower rewards to less profitable high volume players, also described as “poker ecosystem improvements,” has been “reinvested” in:

  • Increased incentives for certain customers
  • Bonuses and promotions
  • New poker product offerings
  • Research and development
  • To “offset costs in the business, including certain taxes, gaming duties and other costs related to promoting the regulation of online gaming in various jurisdictions.”

US expansion: online poker, sports betting and partnerships

On Friday, August 10, Stars announced a partnership with the Mount Airy Casino in Pennsylvania.

“Under the partnership, The Stars Group will provide customers in Pennsylvania an all-inclusive, engaging experience by offering its popular poker, casino (including slots and tables) and sports wagering products.”

This is the first confirmation that PokerStars will be launching in Pennsylvania.

Responding to a question during the earnings call, Stars said that it expected to be up and running some time in Q1 2019, but no specific schedule has yet been set out.

Ashkenazi particularly likes the possibilities in the Pennsylvania market, because like New Jersey, the company will be able to deploy all three of its key products; online poker, casino and sports betting.

Of course, the Mount Airy deal has been driven as much by sports betting as by online poker. Ashkenazi went into more detail during the investor presentation about what Stars thinks of the opportunity and how it expects to take advantage.

Ashenazi confirmed that the group was talking to individual casinos, “multi-state” casino groups and also potential media partners.

The possibility of partnering with a media company is not listed on the slide, and looks to be one of the most interesting new things to come out of this earnings call.

Media expertise could be a competitive advantage

Stars has bought Sky Betting and Gaming (SBG). The deal completed on July 10, and simply awaits approval from the UK’s Competition and Markets Authority (CMA) before work can begin on integrating the two companies.

The UK-based SBG was a subsidiary of the satellite broadcaster Sky, and there remains a strong commercial relationship between the two.

The combination of a gambling operator and media company is unusual, but the gambling related programming going out on Sky is very positive for SBG, and similarly SBG offers Sky sports viewers the opportunity to enhance their enjoyment of sports events by wagering on them. Sky also carries SBG poker programming

The potential for a similar synergy exists in the US. And the Stars Group is the only online gambling partner that has this experience in its management team—or will have after CMA gives its approval for the acquisition.

State regulated sports betting is turning out to be a real game changer in the US online gambling industry. The concept of Stars using its SBG expertise to do a deal with a major US sports media company is one of the ways in which US bettors may get visibility of the scale of the change.

Stars Group Q2 2018 highlights

Other key information to be released today, and financial highlights were:

  • Consolidated Total Revenues—up by 34.8 percent year-over-year to $411.5 million
  • Real-money online Poker, Gaming (casino), and Betting (sports) revenues represented 52.7 percent, 24.8 percent, and 19.7 percent of revenues for the quarter, respectively
  • Casino revenue for the quarter was $101.9 million, up 26.3 percent year-over-year. Over 150 new casino games introduced since the beginning of the year
  • Sports betting revenue was up 122.2 percent year-over-year. “Primarily the result of increases in Stakes and Betting Net Win Margin,” plus the launch of BetStars in new markets.
  • Quarterly Real-Money Active Uniques (QAUs) decreased by 5.2 percent. Primarily “the result of The Stars Group’s continued strategy of focusing on high-value customers (primarily recreational players), the cessation of online poker operations in Australia and Colombia, and an impaired market in Poland.”
  • Approximately 1.86 million of the QAUs played online poker during the quarter, a decrease of approximately 7.3 percent year-over-year
  • Quarterly Net Yield (QNY) was $167, up 21.9 percent year-over-year
  • Net Deposits were $322 million, up of 19.3 percent year-over-year. “The increase was primarily driven by the implementation of the Stars Rewards loyalty program and continued focus on high-value customers (primarily recreational players), foreign exchange fluctuations and continued development of the casino and betting product offerings.”

In the first couple of hours of trading following the earnings call the company’s share price fell by around 10 percent. Investors, despite all of the potential opportunities, appear to have been less than impressed by the results.

- A former founder of Poker Industry Pro and Head of Content at PokerNews publisher iBus Media, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.
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